NKorea economy to languish amid leader transition

By Elaine Kurtenbach

Associated Press

Published: Thursday, Dec. 22 2011 6:12 a.m. MST

SHANGHAI — Tentative reforms to North Korea's dilapidated economy that could help its people escape poverty and hunger are likely to languish as the anointed heir to the late leader Kim Jong Il consolidates his hold on power.

The 11-day mourning period following Kim's death Saturday underscores the regime's focus on uniting behind his young son and heir, Kim Jong Un.

The leadership has inched erratically toward modest reforms as it touted building a "great and prosperous nation" as part of celebrations that had been planned for the April 2012 centenary of the birth of the Kim dynasty's patriarch, Kim Il Sung, who ruled North Korea from its founding until his death in 1994.

The government's attempts to build up the economy including efforts to lure more foreign investment have not been enough to overcome decades of economic mismanagement and outdated farming methods. North Korea's determination to keep developing its nuclear and missiles programs have also meant a loss of aid as well as strengthened sanctions.

One sign of a shift in economic policy came in 2008 with a surprising decision to allow 3G mobile phones in a deal with Egyptian telecoms company Orascom, which claims 809,000 subscribers in North Korea.

In other positive signs, a Chinese state-run company, Shangdi Guanqun Investment Co., agreed to invest $2 billion in building infrastructure, power plants and oil refining facilities in the Rason Free Trade Zone, near the border with China and Russia. China and the North also agreed to jointly develop Huanggumpyong, an island along their border, into a tourism, logistics and manufacturing center.

If not derailed by Kim's death, a proposed gas pipeline between Russia and the Korean peninsula would help form the basis for significant infrastructure development, says Kenneth S. Courtis, a former Goldman Sachs vice chairman who visited Pyongyang in May to assess business opportunities for clients of his private investment company.

The project, to pipe natural gas from Siberia to South Korea via the North, had stalled over the nuclear issue but regained momentum earlier this year, with Russian President Dmitry Medvedev reportedly saying, following a visit by Kim Jong Il, that the North would agree to a deal in exchange for receiving $100 million a year in transit fees.

"Around this pipeline, North Korea could start to rebuild its industrial base, and chemical and particularly fertilizer plants," said Courtis. He said he found North Korean officials "seem to want to engage."

But the situation in the North, always unpredictable, has grown even more uncertain with the installation of Kim Jong Un, who was named as his father's successor only 15 months ago and likely will be guided by his aunt, uncle and other members of the old guard for some time to come.

"It will be difficult for North Korea to focus on the economy in the short term, as they are in the midst of a transition. It will be almost impossible to have many dealings with other countries for at least several months," said Cai Jian, a deputy director of Korea Research Center under the Institute of International Studies in Fudan University.

Kim Jong Il observed a three-year period of mourning after his father died before formally taking control, but the country's ailing economy can ill afford to lose any more time.

Its per capita gross domestic product is stalled at only $1,800, according to the U.S. State Department, compared with $4,400 in China and about $23,000 in democratic, capitalist South Korea — though the two were on a par for two decades after their 1950-53 war.

North Korea's industries and other infrastructure are decrepit "nearly beyond repair," according to the U.S. Central Intelligence Agency. Its latest report notes that less than 3 percent of its roads are paved and less than half its airfields have sealed landing strips.

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